Michael Noonan (Limerick East, Fine Gael)
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Question 3: To ask the Minister for Finance his latest estimate of the gross and net cost of the Anglo Irish Bank's restructured wind down; the time line to the conclusion of the wind down; and if he will make a statement on the matter. [34223/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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On 8 September last, I announced the Government's decision on the restructuring and resolution of Anglo Irish Bank, which remains subject to European Commission approval.

This envisages the splitting of the bank into two licensed and regulated credit institutions: an asset recovery bank focussed on recovering maximum value for the State from the loan assets and business of Anglo not being transferred to NAMA and a funding bank to fully safeguard Anglo's deposit base. It is important to note that this restructuring is not a cessation of business.

As I indicated in my statement, the Central Bank has completed its assessment of the capital required by the new structure. A statement has been issued by the Central Bank detailing the capital required in a base case and in a stressed scenario and providing an explanation of the approach and methodology adopted to determine the bank's capital requirements.

The Central Bank has determined and advised the bank that in the central, or expected loss case, an additional €6.4 billion in total capital will be needed for the recovery bank and funding bank structure to continue to meet the minimum capital requirements in the coming years consistent with Basel rules. A total of €22.9 billion has already been provided by the State since the bank was nationalised early in 2009. This additional capital requirement brings the projected total gross cost of the restructuring of Anglo Irish Bank to €29.3 billion. This additional capital will be provided by increasing the Promissory Note issued by the State and by appropriate burden-sharing exclusively by holders of Anglo subordinated debt instruments, as outlined in my statement.

The Central Bank has also undertaken a stress test on Anglo building on the PCAR analysis carried out for the other banks earlier in the year by the Financial Regulator. It has determined that on the basis of severe stress assumptions, including a 70% discount on the remainder of Anglo's NAMA loans,– the stress case level of losses in Anglo Irish Bank could potentially be €5 billion higher than in the expected case of €29.3 billion. The stress case indicates the upper boundary of the level of losses. It does not represent the Central Bank's expectation of the likely outcome. The Government will, therefore, capitalise the new structure to the expected case requirement of €29.3 billion.

It will be a priority for authorities to press ahead with the restructuring of the bank with a view to achieving its split early in 2011. I will continue to be in close consultation with the European Commission and, in particular with Commissioner Almunia, with the aim of providing in the next month all elements necessary to bring the Commission's assessment of the restructuring plan to a positive conclusion. This should allow the matter to be settled through a formal Commission decision on a timely basis.

Michael Noonan (Limerick East, Fine Gael)
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Why does the Minister consider it necessary to make transfers from the recovery bank to NAMA given the sole work of the recovery bank will be to work out the impaired assets? With the lifting of the ceiling from €5 million to €20 million this appears like the organisation of a big NAMA and a small NAMA, with assets being transferred from one to the other? This seems superfluous and is also a pretty costly exercise. If the impaired assets remain in the recovery bank the people who are expert in this area can work out and recover value on the assets. The transfer process involves bringing in a lot of professional people, who, as we know from the NAMA business plan which allocates €2.5 billion to professional fees over five years, charge large fees. Is that not superfluous, especially given the changes the Minister announced this morning?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I do not agree it is superfluous. The Deputy's question is why the National Asset Management Agency loans are not simply left in the recovery bank. The whole purpose of NAMA is to deal on a systematic, national, cross-bank basis with all of the toxic loans and all the loans in the land and development sector. This was essential because of the cross-collateralisation of exposures throughout the banking system. As was made clear during the debate on NAMA, the exposure by particular developers across a range of banks made it essential that we establish an agency that would deal with those exposures on a systematic basis. There were a large number of individuals who had such cross-systemic exposures that required to be dealt with in a structured way.

One question which the Deputy did not pose but which follows on from his question was whether we considered putting the rest of the Anglo Irish Bank loan book into NAMA - doing it the other way around, if one likes. The answer is that NAMA is busy enough with the amount of work in hand. The remainder of the non-NAMA book in the bank is not concentrated on land and development matters but constitutes general business lending. It is a matter of public record that there is only one very substantial customer of the systemic type, of which a number transferred with the NAMA book.

Michael Noonan (Limerick East, Fine Gael)
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When the Minister decided to establish the National Asset Management Agency, the Government's policy was to rescue Anglo Irish Bank to enable it to continue actively trading. Since then, the Government has changed its view on Anglo Irish Bank and has effectively organised it into two parts for a wind-down. The cost and work involved in transferring the toxic assets from the recovery bank component of Anglo Irish Bank to the National Asset Management Agency make such a transfer superfluous and costly. It has the second disadvantage of crystallising the debt before it is necessary to do so.

I do not see the logic of this exercise. While the cheerleaders in the professions will be delighted with it, the taxpayer does not come out of it very well. I cannot see the advantage of going through the whole rigmarole of making transfers to NAMA from what is now a recovery bank with similar functions to NAMA. Circumstances have changed and Government policy on Anglo Irish Bank has changed completely.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The premise of the question, which permeates the Deputy's contribution, is erroneous. That premise was that the purpose of the National Asset Management Agency was to rescue Anglo Irish Bank to enable it to be a functioning or good bank, if one likes.

Michael Noonan (Limerick East, Fine Gael)
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No, it goes right across the banking sector.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Let us be clear about this. When Anglo Irish Bank was nationalised early in 2009, it did not thereafter substantially expand its existing loan book. The question of whether the bank was being downsized did not arise. From the moment of nationalisation, the policy in relation to Anglo Irish Bank has been to downsize it. The idea that somehow I entertained the notion that it could be transformed into a good bank through transferring assets to NAMA is erroneous. That was the premise of the Deputy's question.

As I have made clear at all stages, management made a case for a split of the bank between a good and bad bank. At times, some Deputies in the Fine Gael Party made a similar case regarding the resolution of the Anglo Irish Bank problem. This was a case that I had examined and it was evaluated by my Department. It was eventually dealt with by Department on the second management application and on the submission of the second application to Brussels.

On the Deputy's point about crystallising the debts, the difficulty is that in the Irish banking crisis is clearly related to the fall in asset price values from the peak of the property market in late 2006 and early 2007. The only credible way to deal with a banking crisis of that type and the textbook approach to doing so is to guarantee the liabilities, set up an asset management company and capitalise the institutions concerned. Those are the steps we have taken and completed this morning. The idea that one cannot crystallise the debt and leave these loans lingering on bank balance sheets would lead to a collection of zombie banks which would fail to reform, improve and repair themselves over a long number of years.

Michael Noonan (Limerick East, Fine Gael)
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Is that not what is being done with the loans of under €20 million?